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Northern Rights

Dragging the Alaska Highway pipeline back in front of Canada's National Energy Board would be like replaying the Stanley Cup finals -- at the insistence of the losing team. Bob Blair chuckles at his analogy. And for good reason. After three decades of convoluted corporate mergers and acquisitions, the analogy -- like the future of the pipeline project itself -- is anything but clear-cut.

Jun 1, 2005

by Jack Danylchuk

Back in the 1970s, when he was a major player in the petroleum industry, Blair’s proposal to move Arctic gas from the Mackenzie Delta and the North Slope down the Alaska Highway won National Energy Board (NEB) approval, beating out a competing bid from TransCanada to build a pipeline through the Mackenzie Valley. Shelved but never forgotten, the project, with its myriad complexities, has been given new life by rising energy prices. If Alaska’s gas producers can cut the deal they want with the state government, Ottawa and the carriers, the system to transport Alaska gas through Alberta to American markets could finally be built within the next decade.

Watching the fray from semiretirement in Vancouver, Blair acts as an unpaid consultant for Foothills Pipe Lines, the company granted the right under 1978’s Northern Pipeline Act (NPA) to build the Canadian leg of the project. At the time Foothills was the property of Blair-led Alberta Gas Trunk Line and partner Westcoast Transmission; today it’s under the TransCanada umbrella. And TransCanada, now in the driver’s seat, argues that the 27-year-old NPA still applies.

“I spent a long time fighting for Foothills,” says Blair, thinking back to the 200 days of NEB hearings that led to the act. “It consumed huge amounts of our lives and corporate resources. To have someone say ‘let’s open this and have another look’ catches you by surprise, to say the least. It sounds a little pushy.”

The company doing the pushing is Enbridge, formerly Interprovincial Pipe Lines. A rivalry between Enbridge and TransCanada has been simmering for a decade, heated by diminishing opportunities for production growth in North America. The companies, headquartered across the street from each other in Calgary, both have unused pipeline capacity, and they’re competing to move oilsands crude out of Fort McMurray. But if the Alaska Highway pipeline proceeds, it will be the biggest prize.

Alaska’s gas producers — BP PLC and its partners Exxon Mobil Corp. and ConocoPhillips Corp. — have proposed a buried, high-pressure line from the state’s North Slope to southern markets. The line would be capable of shipping 4.5 billion cubic feet of natural gas per day (bcfd) and could be expanded to 5.6 bcfd. The estimated cost is $20 billion for a large-diameter pipeline from Prudhoe Bay on the northern coast through Alaska, Yukon and northeastern B.C. to link with waiting lines in Alberta, and then onto the U.S.

Enbridge signaled its intention to enter the competition to build this pipeline early in 2002, a year after Pat Daniel took over as CEO. At the time, Daniel declared that the company must get bigger to compete in an industry in which technology is increasingly expected to provide growth and profits. “There will be industry consolidation,” he predicted. “Electric utilities, gas distribution, gas pipeline companies and independent power producers will start to come together.”

A University of Alberta chemical engineering graduate, Daniel sits on the advisory council to the school’s faculty of business. He came to the post with 30 years of experience, almost all of it with Enbridge and its heritage company, Interprovincial. Once known primarily as an oil shipper, Enbridge boasts 13,500 km of pipeline delivering more than two million barrels a day of crude oil and petroleum liquids. It moved into natural gas in 1994, buying Consumers? Gas Co. Ltd., the biggest distribution company in Canada, with 1.7 million customers in Ontario, Quebec and New York State. Enbridge has major interests in the Alliance and Vector natural gas transmission systems, which deliver gas from northeastern B.C. and Alberta to Chicago. It has also bought former TransCanada assets, pipelines in Spain and Colombia, and recently acquired a system that delivers half of all Gulf of Mexico gas to the U.S.. In 2004, Enbridge’s earnings were $645.3 million.

The battle for the Alaska pipeline burst into the open in early March 2005. Enbridge took out full-page ads in the Globe and Mail and National Post, calling for the federal government to open the Canadian portion of the project to competition. “Canada was built on the principles of fairness and free enterprise,” the ads asserted. “A project like the Alaska-Canada natural gas pipeline should be too.”

Steve Letwin, group vice-president of gas strategy and corporate development at Enbridge, says the ads were prompted by TransCanada’s continuing lobbying efforts with the federal government. “Enbridge was just catching up,” he says. “What we were surprised at was the level of lobbying. We naively thought this was a project that was going to be open in the market. If we had a sense of that we would have been doing a lot more lobbying ourselves. I guess we learned a little lesson, but I think we made our point.

“Just the fact that the government seemed to be landing in favour of the NPA tells me that over the years they’ve heard nothing but NPA whenever there was talk of Alaska,” Letwin continues. “TransCanada has to do what they have to do. I’m not criticizing. They have a view; we have a view. The government shouldn?t play one side or the other. I know the press is trying to put this as two rivals fighting it out, but at the end of the day, if the government stays out, we will be two companies competing for a project. This isn?t about personalities. This is about rights. We’re a publicly traded company; they’re a public company. This is a multi-billion-dollar project. We have invested a lot of money on infrastructure. We need to protect our shareholders.”

TransCanada replied to the Enbridge publicity campaign this past spring with ads of its own, as well as an early April briefing to “set the record straight.” CEO Hal Kvisle spent nearly two hours lecturing reporters and analysts, going into minute detail and patiently answering questions, all the while maintaining that the contest with Enbridge was merely “a creation of the media.”

Like Pat Daniel, Kvisle is also a U of A alumni. He graduated in 1975 with a degree in civil engineering and, with thoughts of an Artic pipeline in mind, started working at Dome Petroleum. When it was dismantled and sold, Kvisle moved to Fletcher Challenge, which at the time was a forestry company. He created its energy division through a series of shrewd acquisitions, building his own reputation as a deal maker. Since taking leadership of TransCanada in 2001, Kvisle has shed assets that didn?t meet pragmatic, common-sense tests, including an energy-trading business like the one Enron pioneered, and fragments of pipelines scattered throughout the world.

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